With condos and co-ops … conclusion

We are finishing up our discussion of the differences between condominiums and cooperatives. It’s an important difference if you are purchasing a home, and it’s important if you are looking for an investment property. It is also important if you are looking to buy up a block of buildings in any given Philadelphia neighborhood to put up an office tower or grocery store — will you have to negotiate with one person or business or with multiple homeowners?

When we left off, we were talking about the condominiums and the homeowner associations that manage them. Remember, the association manages the affairs of the building or the development itself, not the individual units that comprise the building. Each unit is a separate piece of real estate that can be purchased or sold on its own. That purchase includes a certain number of shares of the association, though, and those shares obligate the owner to pay for his or her share of common area expenses. Those payments are “dues.”

Cooperatives are fundamentally different. Pennsylvania state law offers definitions of both “cooperative” and “cooperative interest.” For us, the latter is more confusing than helpful, but on the third or fourth reading, it becomes clear that a buyer buys a piece of the cooperative, not a piece of the building. Because the co-op holds title to the building, the individual shareholders are not responsible for property taxes on their apartments.

Co-ops are organized as a corporation or association, so the co-op is subject to state and local laws related to business organizations as well as real property laws. A co-op is also subject to the laws of eminent domain, though the details are enough for another series of posts.

The shareholders of the co-op elect directors from their ranks, and the members of the condo association do the same. The boards perform essentially the same functions and are both accountable to the homeowners.

The individual homeowners in a condominium have no liability for anything that occurs in the common areas. A slip-and-fall case would be managed by the association’s insurance company, not the insurers of the homeowners. In a co-op, the same theory applies: The corporation would be liable, and the individual shareholders would not be.